Financial stress and stability are not issues with the current economy. The foundation for the last round of quantitative easing was to solve an emergency liquidity problem. That problem has passed almost a year ago. The tapering should begin, and the Fed should move to the issue of rate increases. A cautious Fed has to deal with result of their policy prudence.
We don't know what the market impact of tapering will be given the size of the purchase program, the lower Treasury liquidity, growth prospects, and the ongoing government debt needs, but broad financial conditions and stress are fine. The Fed, nevertheless, should clarify its role in maintaining the integrity of financial markets. This is not the same as providing liquidity to relieve stress.
Growth may slow, inflation may persist, and markets are still overvalued. All reasons for a correction, but it will not be driven by financial stress.
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